Why is it taking so long for the IRS to process my tax refund?

By: Stacey Nickens

I have noticed many of my clients experiencing delays in receiving their tax refund, which can be both frustrating and confusing. If your refund is delayed, you may worry that your return has not been accepted or processed. You may be waiting on your refund to pay for specific expenses.

If you are still waiting on your refund, you are not alone. as of April 30, the IRS had processed 5.8% fewer refunds, or nearly 5 million fewer returns, compared to April 30, 2020.

These delays may extend for weeks or months. Some taxpayers even filed their returns in late February and had yet to receive their refunds as of early May.

What is causing the delay?
In May, the Treasury Inspector General for Tax Administration published a report explaining some of the delays in processing returns and refunds.

The report named staffing shortages, the need to still process returns from last year’s tax season, complex tax law changes, and outdated equipment as the primary reasons behind these delays.

The report even named that some tax processing centers in Utah and Missouri are delayed in processing refunds due to a “lack of working printers and copiers”.

Additionally, the IRS is still working to process some 2019 refunds. At the end of 2020, the IRS rolled over 8.3 million individual tax returns and transactions from last year’s tax season. This represented a 1,200% increased in the IRS’s carryover inventory compared to an average tax season.

With that in mind, some IRS employees aren’t even working on 2020 returns. There job may be to solely work on and finish the backlog of 2019 returns.

What kinds of returns are more likely to experience a delay?
Many taxpayers received quick refunds; however, a few factors may increase the processing time of your return.

For example, you may experience a delay if you received some stimulus money but claimed additional stimulus through the Recovery Rebate Credit on your 2020 return. Claiming the Earned Income tax Credit could also increase your delay, as could filing a paper tax return.

Additionally, some taxpayers have received smaller returns than expected. This may be the case if you withdrew money from your retirement savings in 2020 due to COVID-related financial or health difficulties. The CARES Act ensured you’d avoid the 10% early withdrawal penalty, and you could spread out taxes on the distribution over a three year period. However, you will still owe taxes on the distribution, and the total tax bill on this distribution may surprise you this year.

Moreover, you could be facing taxes on unemployment benefits received in 2020. The American Rescue Plan Act waived taxation on up to $10,200 of unemployment benefits per individual. However, only households earning up to $150,000 qualify for this waiver. Higher earners will still need to pay taxes on their unemployment benefits, and households earning less than $150,000 may still have to pay taxes if their individual benefits exceeded $10,200.

However, the American Rescue Plan Act was passed after many people had filed their 2020 returns and paid taxes on unemployment benefits. The IRS must accordingly review previously-filed returns and determine if the taxpayer is owed a refund. Individuals who received unemployment compensation in 2020 might accordingly experience a delay in receiving their up-to-date refund. The IRS has asked these taxpayers to not file an amended return. The agency will be automatically issuing refunds, though they may be delayed.

What should I do if my refund is delayed?

If your refund is delayed, it may be best to take a deep breath and wait for the IRS to slog through their extensive backlog. With the CARES Act, American Rescue Plan Act, and other COVID-driven legislation, IRS employees are grappling with a number of complicated, extensive, and new tax code changes. Taxpayers who file their own returns without a professional may have also struggled to grapple with these code changes and may have made mistakes on their returns. IRS employees must accordingly work to catch and rectify those mistakes. All of these problems don’t even account for the returns the agency rolled over from last year’s tax season.

All in all, the pandemic is still rearing its ugly head, clogging up this year’s tax season just like it did last year. Try your best to sit tight, and your refund should be on its way eventually. In the meantime, feel free to reach out to any of our qualified tax professionals if you have any questions or concerns.